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SAN FRANCISCO Jan 23 (Reuters) - The crackdown on
file-sharing site Megaupload is expected to do little to reduce
overall piracy of music, software and Hollywood movies, while
potentially stifling emerging means of distributing content
online.

In the wake of last week’s surprising indictment of the
digital storage company and seven executives, other companies
have begun changing their policies even as Megaupload officers
maintained their innocence in a first court appearance in New
Zealand. [ID:nL4E8CN3X6]

Filesonic.com stopped allowing people to download
files that they had not uploaded themselves, while Uploaded.to
blocked access from Internet locations in the United States.

However, just 3 percent of U.S. Internet users relied on
digital lockers like Megaupload in the third quarter, according
to NPD market research, compared with 9 percent who used
peer-to-peer networks, which allow sharing of files among
consumers' computers with little or no central organization.

Peer-to-peer systems, including BitTorrent and PirateBay,
might gain more activity after the Megaupload charges, analysts
said, while users may be afraid to upload content to lockers for
fear they will lose access in a similar shutdown.

“I don’t think you’ll see more file sharers per se, but the
amount downloaded over the torrents might rise,” said NPD’s Russ
Crupnick.

But the Recording Industry Association of America and the
Motion Picture Association of America said at least some users
would balk at the higher complexity of peer-to-peer sites.

Lockers are “more user friendly. I doubt there will be a
wholesale shift” to torrents, said MPAA Senior Vice President
Kevin Suh.

PirateBay appeared to ignore the demise of Megaupload in its
communications with users on Monday. In its blog, writers posted
about how PirateBay saw the future of copying — evolving beyond
digital format to physical objects it dubbed “physibles” – and
about what artists it might promote in coming months.

In a press release issued last week about proposed
anti-piracy legislation in the U.S., PirateBay compared its role
to the founding fathers of the U.S. and took the position that
it fights for freedom of speech and the equality of all people.

SKIP HOLLYWOOD MIDDLEMEN

Though Megaupload has been around since 2005, lockers have
only gone mainstream in the past year. Amazon.com Inc (AMZN.O),
Apple Inc (AAPL.O) and Google Inc (GOOG.O) all adopted some
version of the technology that permits digital content to be
uploaded for the purpose of backing up user data or making
content available to multiple devices or outsiders.

For some content producers, the new avenues are a way to
skip the middlemen in Hollywood and reach their fans directly.

Last month, the comedian Louis C.K., complaining of a lack
of royalties from conventional DVD sales, offered downloads of a
one-man show for $5 from his own website and sold more than $1
million worth.

Megaupload supporters in the past have included major
recording artists, such as Macy Gray and Sean “Diddy” Combs, who
lent their voices to a popular video touting Megaupload by name.

Rapper Busta Rhymes signalled his support on Twitter even
after the arrests last week, tweeting that Megaupload “could
create the most powerful way 4 artist 2 get 90% off of every
dollar despite the music being downloaded 4 free.”

Until the middle of last year, Megaupload offered “rewards”
for those who uploaded the most popular content. The indictment
said this induced piracy, because the most popular content was
likely to infringe copyrights.

But Jennifer Granick, a longtime Internet attorney who is
now general counsel for a site devoted to hip-hop, said the idea
that only infringing material would be popular was “ridiculous”.

“This is a way for artists of all kinds to get out of these
record-label deals that can be really limited. These can be a
really important way to try to make money and get their stuff
out there.”

Julie Samuels, an attorney for the civil liberties nonprofit
Electronic Frontier Foundation, said it was unusual for the
Justice Department to bring a criminal case for an alleged
conspiracy over copyright violations, which are usually handled
in civil court.

The EFF filed an amicus brief defending another locker
service, MP3Tunes, against a record label that sued over a
related issue, the “de-duplicating” that saves resources by
preserving only one copy of a file that is uploaded by many.

The court ruled that MP3Tunes was in the clear as long as it
abided by Digital Millennium Copyright Act requirements for
responding to takedown requests, blocking repeat infringers and
the like.

Samuels said she was not surprised that other file-storage
services were dropping reward programs and in some cases
limiting downloads to users’ own files.

But she said that was bad for innovation and bad for users.

“The worst part here is that if the lockers are legally
unstable then users will be hesitant,” she said. “What’s really
been troubling is that the third parties who are using
Megaupload for legitimate reasons no longer have access to their
own content. In this case it’s the government, but often it’s
traditional industries that are squelching innovation in what
may be an expansion of ways for artists to get paid.”

(Reporting by Joseph Menn and Sara McBride in San Francisco,
Jeremy Pelofsky in Washington and Jim Finkle in Boston; Editing
by Tiffany Wu, Bernard Orr)

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